Forex Blog: Currency Trading News & Analysis.

July 7th 2009

Interview with Sean Hyman: “Trade with the trend”

As part of our ongoing series, printed below is an interview with Sean Hyman, of World Currency Watch. [Blog found here]. Sean has collected over 15 years of experience as a stockbroker, manager, and trader, working for enterprises as varied as a technical analysis “call in” line for their million dollar+ clients and active traders, Charles Schwab, and FXCM. Over this period, he has refined his trading approach through the use of fundamental/technical analysis and intermarket analysis, and now takes a very “macro” approach.

Forex Blog: I would would like to begin by asking you to briefly explain your approach to analyzing and trading in the forex markets. Do you prefer technical or fundamental analysis, or a combination of both?

I use a combination. You see, fundamentals tell you what is best to trade, but not when. Technicals tell you when to trade but not what’s actually the “best” currency to trade. Therefore, I use the fundamentals to pair up the strongest currencies with the weakest currencies and look to buy those pairs upon technical entry signals. So I feel that one doesn’t have to be in “one camp or the other”. Both can compliment each other.

Forex Blog: You wrote recently about spotting long term trends in forex markets. What do you perceive to be the “trends” at this point? Do you think that the Dollar will continue to trend downwards, or do you expect a pickup in risk aversion to send it back up?
Right now, the U.S. Dollar Index is in a clear downtrend (as noted by trend lines or major moving averages like the 200 SMA). So I’d be short the dollar. However, pros have to be nimble too. If the global stock markets go into a tail spin once again, I’m willing to see if the Dollar Index breaks the downtrend. If it does, I’d be willing to go long the dollar at that point. A pro always has to have an opinion, but also has to be willing to constantly reassess that opinion too if it seems like the facts are changing. Honestly, right now it appears like the fundamentals are improving. However, we need the stock markets to confirm this too. If they don’t, then that’s where we could see the dollar and yen regain strength. So right now there’s a huge battle between the “deflationary camp” of traders and the “inflationary camp” of traders.
Forex Blog: The credit crisis exposed the myth of “decoupling,” which held that the US economy no longer pulls the rest of the world along. Do you think that as a result of the credit crisis, decoupling is more realistic, such that a global recovery might not be led by the US? In such a scenario, do you think that this would spur a decline in the importance of the US Dollar?
Personally I think China is more likely to help lead the way out of this global slump than the U.S. is. If you had countries like China and India fare well, then they could help to the global economy to start ‘turning the corner”. However, the U.S. has to “get in the game” at some point in order for the global recovery to be sustained. If the global economy starts to recover, then the dollar will tank as traders go after higher yielding assets. If we get a “double dip” recession, then the dollar may get its “second wind” once again. It’s more of the pros job to see which scenario tends to be winning out and go with the current trend on the chart. I have no doubt that central banks will “inflate” their way out of this recession eventually. The only question is..”Do we have a double dip recession first or do we start to mend from here?”
Forex Blog: You covered Swiss National Bank intervention on behalf of the Swiss Franc. Do you think the SNB has enough credibility at this point that traders won’t dare bet against the Franc? In addition, do you think other Central Banks will follow suit and try to depress their respective currencies?
I think that traders love to press the central banks as they fight the intervention. Usually in the short run, the traders win…but in the long run, the central bankers win. Right now, the Swiss obviously want to hold the EUR/CHF pair to the 1.50-1.52 level. They are attempting to hold the Swiss franc down to where the EUR/CHF downtrend remains broken. If they can do this, then there are a lot of institutional “trend following” programs that will start to kick in and help their cause. If they can not “hold the line”, then the speculative traders will jump on this like a shark that senses blood in the water! Personally, I don’t think other central banks will continue to devalue their currencies from this point. Some speculate that the Aussie or New Zealanders may do this but I don’t think so at this point.

Forex Blog: You blogged recently about trading in so-called exotic currencies. Do you the recent decline in risk aversion will continue to push exotics as a whole upward? Are there any particular such currencies that you believe are especially undervalued?

If the VIX continues to drop and markets remain stable then shorting pairs like the USD/ZAR and USD/TRY could be great plays. The exotics will move much more on a “dollar fall” than will the majors. So you’d get the most “bang” there. You just have to be aware that you’ll need much wider stops with the exotics. However, you can still have good risk to reward ratios on these trades as long as your “percent of equity” at risk is still low (1-5% of your overall account balance). I personally think that these are the place to be as the global economy recovers because they have the highest growth rates AND highest interest rates. There are no “sexy” high yielders in the majors these days. Therefore it gives the exotics so much more appeal due to the lack of “true high yields” amongst the majors.

Forex Blog: You’ve written extensively about how to use stochastics and moving averages to gauge the near-term direction of specific currency pairs. Can you briefly explain this approach to those unfamiliar with it?
Yes! Many people aren’t confident in drawing trend lines and they routinely draw them improperly. However, is one just simply puts a 50 period SMA (simple moving average) on their chart and ONLY takes the Stochastic signal that’s in the direction of the way that the moving average is pointing (for their entry signals) then they’ve significantly improved their consistency and they are on the right side of the trade more often than they probably are right now. It’s a simple approach but it makes analysis very easy. Look to see which direction the moving average points to….and take ONLY those entry signals that are in the direction of that medium term trend that the 50 period SMA defines. This can be done with the 200 SMA as well but many traders are medium term traders and should probably start off using the 50 SMA at first. This is probably a much better approach than using two moving averages as a crossover system, for instance.
Forex Blog: What is your favorite technical analysis indicator? How have you used it to successfully trade forex?
The 200 period SMA and trend lines. These deal directly with the price action itself and keeps one focused on the trend direction itself and causes one to not counter trend trade (which leads to low probability trading). High probability trading is sticking “with” the trend and never trading against it.
Forex Blog: You advised your readers to “Invest in the Loonie when Both U.S. Stocks & Commodities Head Higher!” Is it fair to say that given the recent pullback in stocks, you don’t think this is an opportune time to buy the Canadian Dollar?
We need to see a concerted push higher in both stocks and commodities…and for the general consensus to change to that of a general opinion to where traders feel that we’re “for sure” recovering and the “double dip” scenario dissipates. This may take a bit longer until we see “for sure” whether we’re out of the woods yet economically or not. Oil would need to maintain  its uptrend and stocks need to decisively breakout higher. When that finally happens, then short the USD/CAD pair. Tha’s my opinion.
Forex Blog: Finally, what advice do you have for investors that want to beat the market during the credit crisis?
Trade with the trend…never pick tops/bottoms. Risk only 1-5% of your account balance at any time. It’s all an “odds” game and this type of thinking puts you on the right side of those odds. When the recovery is for sure underway, go with the higher inflation/higher interest pairs when you buy (AUD, NZD, and the exotics). Trade only the strongest fundamentals and strongest technical trends on the charts. Most trading stations have 20-30+ pairs to choose from. So pick ONLY the 1-2 top pairs that look the best on the charts to you. That will give you the most confidence in the trade as it bobs up and down on its way to profitability. Give the trades time to work themselves out. Plan on being in trades for days or weeks but not hours or minutes. That’s a recipe for disaster for most traders. Everyone wants to be a “day trader” but they really should be a “swing trader” taking trades over days to weeks and trade off of larger time framed charts (1 hour, 30 day charts or 4 hour, 40 day charts…notice that I use long look back periods).
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Posted by Adam Kritzer | in Interviews, News | 1 Comment »

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One Review of “Interview with Sean Hyman: “Trade with the trend””

  1. Martin Eshleman Says:

    I personally trade with the trend by using the EMA and SMA. It seems to work good for me. Great information. Thank you.

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